The Party's Over

The party’s over A special report on Spain November 11th 2008 sspain.inddpain.indd 1 228/10/088/10/08 114:09:544:09:54 The Economist November 8th 2008 A special report on Spain 1 The morning after Also in this section Zapatero’s gambits Flirting with nationalists, provoking the opposition. Page 3 How much is enough? Devolution has been good for Spain, but it may have gone too far. Page 5 Banks, bricks and mortar An already solid nancial system faces more consolidation. Page 7 In search of a new economy But reforming the old one is just as impor• tant. Page 9 A cooler welcome Attitudes to immigration are turning more cautious. Page 11 After three decades of partying, Spain has woken up with a hangover. The Spanish legion Curing it will require changes, writes Michael Reid Modern Spain has bred a remarkable range of HE past few months have been bitter• economy grew by just 0.1% between the successful companies. Page 12 Tsweet for Spain. In a general election in rst and the second quarters of this year, March the Socialist Party won a clear but the slowest pace since 1993. It is now al• The perils of parochialism not overwhelming victory, giving José Luis most certainly contracting. So sharp was Europe is no longer an automatic solution for Rodríguez Zapatero a second term as the deterioration that Mr Zapatero (pic• Spain’s ills. But nor is navel•gazing. Page 14 prime minister. That seemed to drain some tured above with Pedro Solbes, his nance of the partisan poison that had accumulat• minister), who had earlier refused to ac• ed in the political system over the previous knowledge that there was any economic four years. In June Spain shook o its long• crisis, interrupted his August break to hold standing reputation as the permanent un• an emergency cabinet meeting. Spaniards der•achiever of world football, winning went on holiday in party mood and came the European championship with swift back to nd there was no champagne left, and skilful attacking play. Not only did the nor even any decent wine, sums up Fer• performance of its young team (featuring nando Fernández, a former IMF ocial Catalans as well as the usual Madrileños who is now rector of Nebrija University in prominent positions) seem to echo near Madrid. Spain’s owering of creativity in every• Acknowledgments thing from architecture to gastronomy; Great while it lasted Apart from those mentioned in the text, the author would many commentators saw the footballers’ The esta had indeed been splendid. Spain like to thank the many other people who helped in various ways with the research for this special report. He is triumph and the public’s rapturous re• has undergone an extraordinary transfor• particularly grateful to Eduardo Serra Rexach, Bernadino sponse to it as a welcome expression of na• mation since Francisco Franco died in 1975 León, Ana Patrícia Botín, Maite Rico, Luis Prados de la tional unity in a country that seemed to be and his long dictatorship came to an end. Escosura, Pedro Ruíz Morcillo, Tom Burns Marañon, Lord (Tristan) Garel•Jones, Martin Leeburn, Juan Cierco and turning increasingly ssiparous. In July Ra• Democracy was swiftly consolidated. A Fernando Villalba. fael Nadal, a tennis genius from Mallorca, deeply conservative Catholic society has won the Wimbledon championship. At metamorphosed into an almost self•con• For our interview with the prime minister, José Luis the moment of victory he scampered sciously tolerant one. In the 1960s two• Rodríguez Zapatero, see across the press•box roof, clutching the na• fths of Spaniards still toiled on the land, www.economist.com/zapatero tional ag, to salute Spain’s crown prince many of them living in poverty. Now only and his wife. 5% work in agriculture. Spain has become a A list of sources is at But every month since the election the vibrant, middle•class urban society. www.economist.com/specialreports news at home has become gloomier. In• Social and political change went hand vestment is slumping. Unemployment in in hand with economic progress. Between An audio interview with the author is at August was 11.3%, a third higher than a year 1994 and 2007 the economy grew at an av• www.economist.com/audiovideo earlier, the biggest jump for 30 years. The erage annual rate of 3.6%. During that per• 1 2 A special report on Spain The Economist November 8th 2008 2 iod unemployment fell from 24% to 8%, leashing a housing boom. sion struck in the past, as it did in the early even though many women joined the la• Yet with a suddenness that has taken of• 1980s and again in 1993, the key to recovery bour force and some 5m immigrants ar• cials by surprise, economic boom has was devaluation. But with Spain in the rivedand were absorbed with scarcely turned to bust. When the European Cen• euro that option is no longer available. Un• any sign of tension. For most of the past de• tral Bank raised interest rates last year, the less the government rams through struc• cade Spain has been responsible for creat• housing bubble burst. Higher oil prices tural reforms to make the economy more ing about one in every three new jobs in also cut disposable income, as well as competitive, the argument goes, adjust• the euro zone. By 2007 total employment pushing ination to a new high of 5.3% in ment to a harsher economic environment had risen to 20m, from only 12m in 1993. July. And international nancial turmoil will involve a big rise in unemployment When Spain joined the forerunner of the has caused a credit squeeze at home. and years of stagnation. Instead of going European Union in 1986 its income per per• Mr Zapatero points out that so far Spain into a V•shaped recession, with a swift re• son was only 68% of the club’s average; in has fared no worse than several other large covery, the economy could be heading for 2007 its income per person was 90% of European economies, and that the coun• an L•shaped depression. that of the 15 EU members before its latest try’s nancial system is stronger than that Spain’s prosperity is due partly to good expansion. Living standards are now high• of many of its counterparts: to date, no luck, in the form of EU entry. But for most er than Italy’s. Spanish bank has got into diculties. In an of the past 30 years it has also managed its The improvement in Spaniards’ lives is interview for this special report Mr Zapa• a airs far better than its southern Mediter• instantly visible. Many elderly people are tero conceded that the economy faces a ranean peers have done. Despite some cor• short, stunted by the hunger they su ered period of stagnation, but insisted that ruption, particularly in local government, as children in the hard years of fascist au• Spanish politics is generally fairly clean. tarky after Franco won the civil war of The country’s economy is relatively open 1936•39. Young Spaniards are strikingly Narrowing lead 1 and exiblehalfway between Britain and taller than their grandparents, exemplied GDP, % increase on previous year the rest of continental Europe. Economic by Pau Gasol, who measures seven feet management has been mostly competent (2.13 metres) and was voted the most valu• 5 and stable: since 1993 Spain has had just able player when Spain won the latest Spain two nance ministers (Italy has had four world basketball championship. 4 since 2001alone). Mr Solbes, who has held Spain is not just a desirable place to the job since 2004, had an earlier spell in 3 livethough it is that, attracting northern 1993•96 under Mr González before moving Europeans who have bought second 2 on to become the EU’s commissioner for homes in order to enjoy the Spanish com• EU15 economic and monetary a airs. Under Mr bination of sun, good public services and a 1 Aznar the incumbent was Rodrigo Rato, relaxed way of life. In 2006 it was the who subsequently became the IMF’s boss. world’s ninth•largest economy measured 0 Ocials reel o other reasons why at market exchange rates and the twelfth• 1996 98 2000 02 04 06 08* Spain is now a di erent and stronger coun• Source: Eurostat *Forecast largest at purchasing•power parity. It is the try than it was when recession last struck. sixth•biggest net investor abroad. For example, in 1993 the government had a The economic boom began under Fran• once calm returns to the international sys• budget decit of 7% of GDP; in 2007 it had a co, who abandoned autarky in the late tem, we will return to growth without the surplus of 2.2% and public debt was just 1950s. He turned the management of the Spanish economy having su ered struc• 36.2% of GDP, down from a peak of 68% in economy over to technocrats from Opus tural damage. The government forecasts 1996 (compared with Italy’s gure of 104% Dei, a lay Catholic organisation, who that after a year of almost no growth a re• in 2007 or Britain’s of 44%). Even more im• opened it to foreign trade and investment. covery will start towards the end of 2009. portantly, over the past 15 years a clutch of But a bigger change came in 1986 when Fel• This strikes many as far too optimistic. powerful Spanish multinationals has ipe González, a Socialist prime minister, Economists and businesspeople complain emerged.

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